Free Motion to Amend Pleadings - Rule 15 - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ULYSSES, INC., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 06-436C (Judge Williams)

DEFENDANT'S MOTION FOR LEAVE TO AMEND ITS ANSWER TO ASSERT AFFIRMATIVE DEFENSES AND COUNTERCLAIMS Pursuant to Rules 13(f) and 15(a) of the United States Court of Federal Claims ("RCFC"), defendant respectfully requests leave of the Court to amend its answer in this case to assert affirmative defenses and counterclaims based upon the False Claims Act, 31 U.S.C. § 3729 et seq., the special plea in fraud, 28 U.S.C. § 2514, and the fraud provision of the Contract Disputes Act ("CDA"), 41 U.S.C. § 604. In support of this motion, we rely upon the brief below and the pleadings in this case. Our proposed amended pleading is attached to this motion. DEFENDANT'S BRIEF STATEMENT OF THE CASE I. Nature of the Case The Defense Supply Center Columbus ("DSCC"), Columbus, Ohio, is a primary level field activity of the Defense Logistics Agency ("DLA"). DLA is an agency of the Department of Defense that purchases, stores and manages a wide assortment of supplies for the armed forces. DSCC is one of three DLA procurement centers, and purchases electronics and construction spare parts for the military. The case arises out DSCC's cancellation of two purchase orders that it had issued to plaintiff Ulysses, Inc. ("Ulysses"). The basis for the cancellation was that DSCC learned that

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Ulysses never intended to provide the specific parts sought by purchase orders. Indeed, Ulysses submitted quotes to secure those Government purchase orders for specific parts even though Ulysses knew it was not an approved manufacturer of such parts, and thus was ineligible for contracts to supply them. II. Statement of Facts A. Solicitation SP0900-02-T-CB06

On March 11, 2002, DSCC issued Solicitation SP0900-02-T-CB06 for the procurement of a circuit card assembly identified by National Stock Number (NSN) 5998-00-007-1450. This NSN is a critical weapons system item, used by the Navy in the AN/AWM-54 Fire Control System, Test Set. The Navy must approve all manufacturers of this item before DSCC can procure their particular parts. In order to become an approved source for this NSN, a contractor must submit a Source Approval Request (SAR) to DSCC that meets all the Navy's requirements, with no exceptions. DSCC then forwards the SAR to the Navy for approval. The solicitation was issued under the DSCC DIBBS/PACE system, an automated system that solicits quotes electronically and makes awards automatically without buyer intervention. The solicitation here was governed by the DSCC Master Solicitation for Automated Solicitations and Awards ("DSCC Master"). A contractor submitting a quote is informed that the DSCC Master applies to the procurement by the Request for Quotation screen that appears when the contractor accesses the website for the solicitation. The solicitation was a "code and part number buy," which means that the solicitation described the item to be procured by a manufacturer's CAGE code and part number rather than in accordance with a particular drawing or drawings. The solicitation listed three manufacturer's

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part numbers as acceptable sources of supply: Abrams Instrument Corp. (CAGE 00048) part number 178AS112; Raytheon Technical Services Co. (CAGE 072E5) part number 178AS112; Technical Services Laboratory, Inc. (CAGE 51283) part number 178AS112. Only these three manufacturers had been approved by the Navy at that time for the above-described circuit card assembly item. The DSCC Master informed offerors that PACE only considers "qualified quotes" for award. "Qualified quotes" are in exact compliance with the solicitation requirements (i.e., a "bid without exception"), and are submitted on DIBBS. The DSCC Master further informed offerors that quoting an alternate item is considered an "exception" to the solicitation requirements, and that alternates will not be considered for award. Finally, the DSCC Master provided that alternate items may be submitted for acceptance for future procurements, and accordingly indicated where the contractor could send alternative item technical data for evaluation. B. Ulysses's First Quote And DSCC's First Purchase Order

Ulysses responded to Solicitation SP0900-02-T-CB06 and submitted its quote electronically on DIBBS by filling in certain required fields in the Request for Quotation form. Ulysses noted that its bid was "without exception" and that it was offering CAGE 072E5, part number 178AS112. CAGE 072E5 corresponds to Raytheon Technical Services Co. Because Ulysses indicated that its bid was "without exception" ­ and cited an approved source's name and CAGE Code ­ a notice appeared on the quote form that alerted Ulysses as follows: You have stated that the product offered for NSN is an "exact product." Exact product means CAGE 072E5 part number 178AS112, manufactured by or under the direction of CAGE 072E5. If you intend to manufacture this item, but are not CAGE 072E5, you must have evidence of a current contractual relationship with CAGE 072E5 to manufacture and sell this item -3-

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as CAGE 072E5 P/N 178AS112 in order to quote exact product. Any product not meeting these criteria is considered an alternate product even though it may be manufactured in accordance with the drawings and/or specifications of CAGE 072E5. This notice further instructed Ulysses that "[a]ny indication that you have misrepresented the product offered shall result in the Government considering rescission of any resultant contract and all other sanctions, contract penalties, and remedies established under any other law or regulation." On April 29, 2002, DSCC awarded unilateral Purchase Order SP0960-02-M-4209 ("First Purchase Order") to Ulysses for part number 178AS112 manufactured by Raytheon Technical Services Co. for a unit price of $525.00 and a total price of $44,625.00. Pl. Compl. ¶ 1. The material was to be delivered in two shipments by June 29, 2002 and August 27, 2002 respectively. C. DSCC's Stop Work Order

Ulysses did not deliver any items by the first shipment's delivery due date of June 29, 2002. In July 2002, DSCC learned that Ulysses intended not to provide the Raytheon part number that was ordered, but rather to provide an item that Ulysses itself was manufacturing. When DSCC contacted Ulysses regarding its problematic bid, Ulysses admitted that it was not providing a Raytheon part, but rather a part that Ulysses itself was manufacturing. Ulysses did not claim to have any contractual relationship with Raytheon that permitted Ulysses either to manufacture or sell the relevant Raytheon part. Moreover, Ulysses did not claim that it was manufacturing the part under the direction of Raytheon. Rather, Ulysses claimed to be an approved source for this item. Pl. Compl. ¶ 11. On August 19, 2002, DSCC issued a stop work order to Ulysses and asked Ulysses to -4-

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submit all technical data for this item to the Government to determine whether Ulysses in fact was an approved source. Pl. Compl. ¶ 8. The contract file indicates that the first DSCC contact from Ulysses, after the stop work order was issued, was a letter dated October 14, 2002, inquiring about approval for its part. The contracting officer responded that he had not received any supporting documentation from Ulysses and was awaiting the submittal of the technical data to determine whether Ulysses was an approved source for the part in question. D. Ulysses's Response To DSCC

From November 13, 2002 to December 6, 2002, there were several exchanges of correspondence between the contracting officer and Ulysses. The contracting officer continued to request technical data or proof that Ulysses had been previously approved to manufacture or to supply the relevant Raytheon item, and Ulysses continued to argue that it, in fact, had been so approved. Ulysses did not submit any such technical data or proof to the contracting officer for review. In December 2002, Ulysses sent the contracting officer a drawing of a printed wiring board assembly as proof that Ulysses was an approved source for this item. On January 6, 2003, the contracting officer forwarded the drawing and correspondence from Ulysses to the DSCC technician responsible for this NSN and asked for advice regarding the acceptability of the Ulysses part. The technician correctly responded that Ulysses was not a Navy approved manufacturer for this item, and that to be approved as a source of supply Ulysses should submit a Source Approval Request (SAR) that met all the requirements of the Navy SAR website. On February 14, 2003, the contracting officer informed Ulysses of this and further advised that if Ulysses could not provide the exact item identified in the purchase order, the Government would

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cancel the order at no cost to the Government. Ulysses was dissatisfied with the CO's determination, and thus requested that the matter be elevated to DSCC's legal department. At the request of the DSCC legal office, Ulysses submitted documentation to show that it previously had provided the part in question to the Government and was an approved source. Those documents, however, do not show that the Government had ever approved Ulysses to manufacture the item in question or that Ulysses ever had any contracts with the Government to supply the item. The documents only show that Ulysses previously had provided the part to other contractors and to the Australian government. E. Solicitation SP0900-02-T-K808

On December 17, 2001, DSCC issued Solicitation SP0900-02-T-K808 for the same circuit card assembly as was procured under purchase order SP0960-02-M-4209. DSCC failed to receive any quotes via the automated system by the solicitation closing date (December 31, 2001), and thus proceeded with a "manual" procurement. Because DSCC was aware of the First Purchase Order issued to Ulysses, DSCC sought a quote from Ulysses for the new solicitation. Mr. Demetrios Tsoutsas, president of Ulysses, Inc., thereafter submitted a quote on behalf of another of his companies, Melstrom Manufacturing Corp. While the Melstrom quote referenced the relevant NSN and part number, the quote did not specify a CAGE code. On June 27, 2002, the contracting officer issued (unilateral) Purchase Order SP0960-02-M-5456 ("Second Purchase Order") to "Ulysses, Inc., CAGE 54432" for 99 units of the NSN at a total price of $50,490, to be delivered by November 4, 2002. Pl. Compl. ¶ 2. Section B of the award document specifically identified the requested item as Frequency Selective Networks, Inc. (CAGE 56662) part number 178AS112.

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In July 2002, DSCC learned that Ulysses intended to provide its own part under the Second Purchase Order (just as Ulysses intended to do with respect to the First Purchase Order). The facts from that date forward with respect to the Second Purchase Order are identical to those described above with respect to the First Purchase Order. For example, although the contracting officer requested technical information from Ulysses with respect to the Second Purchase Order, Ulysses failed to provide such information. As a result, DSCC canceled the Second Purchase Order on June 17, 2003, the same date upon which DSCC canceled the First Purchase Order. Pl. Compl. ¶ 20. F. The Litigation

On June 1, 2004, Ulysses filed a complaint in the Court of Federal Claims, No. 04-938C, requesting $44,625 for wrongful cancellation of that purchase order. Ulysses also filed a second complaint (No. 04-939C) for the cancellation of the Second Purchase Order. Those cases were consolidated and subsequently dismissed, without prejudice, due to Ulysses's failure to obtain a contracting officer's final decision. In February 2006, Ulysses submitted claims to the contracting officer seeking damages for the alleged wrongful cancellation of both purchase orders. Pl. Compl. ¶ 26. The contracting officer issued a final decision denying the claims on April 7, 2006. Pl. Compl. ¶ 28. Following the CO's denial of Ulysses's claims, Ulysses filed a new complaint in the Court of Federal Claims (No. 06-436) on May 30, 2006, seeking damages allegedly resulting from the cancellation of both purchase orders. Ulysses alleges that the Government improperly cancelled the two purchase orders, improperly rejected testing of a first article offered by Ulysses, and waived the fact that Ulysses may not be an approved source by accepting these

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items from Ulysses under past contracts. Pl. Compl. ¶ 34-36. Ulysses requests that DLA accept these parts and pay it the total purchase price of $95,115. Id. ARGUMENT An omitted counterclaim may be added by amendment, see RCFC 13(f), and "leave [to amend] shall be freely given when justice so requires." RCFC 15(a). The Supreme Court has indicated that leave to amend should be allowed liberally "except where prejudice to the opposing party would result." United States v. Hougham, 364 U.S. 310, 316 (1960); see also Intrepid v. Pollock, 907 F.2d 1125, 1128-29, 1131 (Fed. Cir. 1990). The facts discussed above support counterclaims based upon the False Claims Act, 31 U.S.C. § 3729 et seq., the special plea in fraud statute, 28 U.S.C. § 2514, and the antifraud provision of the CDA, 41 U.S.C. § 604. This Court possesses jurisdiction pursuant to 28 U.S.C. §§ 1503 and 2508 to adjudicate counterclaims raised by the United States, including those arising pursuant to the False Claims Act and for fraud. Brown v. United States, 524 F.2d 693, 703 (Ct. Cl. 1975); Daewoo Engineering and Const. Co., Ltd. v. United States, 73 Fed. Cl. 547, 584 (2006). Furthermore, justice requires that Ulysses be prohibited from profiting from its fraudulent misrepresentations and that the Government be afforded the opportunity to demonstrate that Ulysses obtained the purchase orders through fraud and submitted fraudulent claims for payment under the CDA. Moreover, there is no prejudice to plaintiff Ulysses, particularly, where, as here, its discovery is continuing. In fact, Ulysses only recently submitted its responses to our discovery requests on May 11, 2007, more than two weeks after these responses were due pursuant to RCFC 33(b)(3). In addition, all of the relevant facts necessary to defend against the

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counterclaims are within plaintiff's control, i.e., no additional discovery should be necessary. Finally, in that regard, should Ulysses seek a reasonable extension of the discovery deadlines currently set in this case, we will not oppose such a request. I. False Claims Act The False Claims Act ("FCA") prohibits anyone from presenting a "fraudulent claim for payment or approval" to the Government. 31 U.S.C. § 3729(a)(1). "For the purposes of the FCA, a contractor is deemed to have known that a claim it submitted was false if it had actual knowledge of the falsity of the claim or it acted in deliberate ignorance or reckless disregard of the truth or falsity of the claim." Commercial Contractors, Inc. v. United States, 154 F.3d 1357, 1362 (Fed. Cir. 1998) (citing 31 U.S.C. § 3729(b)); see also United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39, 51 (FCA violations where "material misrepresentations [are] made to obtain a government benefit") Here, Ulysses claims money owed under putative contracts with DLA to provide part number 178AS112. Although we deny that any contract was awarded to Ulysses, we agree that a purchase order may ripen into an irrevocable offer where a contractor undertakes a substantial part of performance pursuant to the order. See, e.g., Kaeper Machine, Inc. v. United States, 74 Fed. Cl. 1 (2006). DLA issued the First Purchase Order to Ulysses, however, only because Ulysses falsely represented that it would provide part 178AS112 produced by CAGE 072E5 (i.e., Raytheon Technical Services Co.). The available evidence indicates neither that Ulysses had any intention of providing a Raytheon part, nor that Ulysses was authorized to manufacture the specified part pursuant to an agreement with Raytheon. Thus, to the extent that the First Purchase Order somehow ripened into a contract, Ulysses obtained such contract via false

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statements. Indeed, with respect to its electronic offer, Ulysses was warned that "[a]ny indication that you have misrepresented the product offered shall result in the government considering rescission of any resultant contract and all other sanctions, contract penalties, and remedies established under any other law or regulation." Likewise, Ulysses's February 2006 claim to the contracting officer was false in that Ulysses represented that it was approved to manufacture the parts that were the subject of both purchase orders. Ulysses, however, never submitted a SAR for evaluation by the Navy. Moreover, Ulysses has not provided any evidence that it was an approved source for the items in question. If Ulysses, indeed, had been approved at one time, it was not so approved at the time DLA issued the purchase orders. Both purchase orders were for parts made by two specific manufacturers, under terms and conditions that did not permit alternate items. Ulysses knew that the part it was manufacturing would be an unacceptable "alternate item" and the notice on the DIBBS/PACE system informed Ulysses of that fact. In sum, Ulysses fraudulently induced the Government to issue two purchase orders to Ulysses. Ulysses knew: (1) that it could only submit a quote if it intended to supply parts from an approved manufacturer; (2) that it was not an approved manufacturer; (3) that it planned to deliver parts that it manufactured and pass them off as approved parts. Moreover, Ulysses compounded its lie by falsely representing to the contracting officer that it was an authorized manufacturer and in submitting its February 16, 2006 certified claim for payment to the contracting officer. Both purchase orders at issue in this case were for specific, approved parts from specific manufacturers, and neither purchase order permitted substitution of other non-approved

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manufacturers. Neither purchase order sought parts made by Ulysses. Thus, this case presents a factual situation remarkably similar to that addressed by the district court in United States v. Advance Tool Co., 902 F. Supp. 1011 (W.D. Miss. 1995). In that case, the defendant received purchase orders to provide the Government with a variety of tools identified by a National Stock Number ("NSN") and produced by a particular manufacturer. The court found that the defendant "delivered tools that he knew were not provided by manufacturers specified in the applicable [solicitation's] descriptions of the tools" and that the defendant "knew that the tools had not been submitted to GSA for evaluation to determine whether the tools were satisfactory substitutes for the specified items, as required by the solicitations to which he responded." Id. at 1015-16. The court held that such conduct violated the FCA. Id. (explaining that "it is not a defense to a claim under the FCA that the tools delivered to the government entity were as good as those requested"). Similarly, this Court, in at least one case, has held that a contractor's delivery of a product that failed to comply with the requirements of an applicable Qualified Products List is actionable under the FCA. See Chemray Coatings Corp. v. United States, 29 Fed. Cl. 278, 28485 (1993) (denying summary judgment but noting that "defendant's burden in proving deviation from the QPL would not be a heavy one").1

See also, e.g., United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39, 51 ("the FCA can be used to create liability where failure to abide by a rule or regulation amounts to a material misrepresentations [sic] made to obtain a government benefit" (emphasis in original)); BMY-COMBAT Systems v. United States, 44 Fed. Cl. 141, 147 (1998) (explaining plaintiff violated FCA by "stating that the records supported that the howitzers met all contract specifications, even though plaintiff knew that [a certain component] had not been inspected"). -11-

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II.

The Special Plea In Fraud The Forfeiture of Fraudulent Claims Act (also known as the "special plea in fraud"), 28

U.S.C. § 2514, provides: A claim against the United States shall be forfeited to the United States by any person who corruptly practices or attempts to practice fraud against the United States in the proof, statement, establishment, or allowance thereof. In such cases the United States Court of Federal Claims shall specifically find such fraud or attempt and render judgment of forfeiture. In order to prevail on a special plea in fraud under § 2514, the Government must prove: (1) a misrepresentation of material fact; and (2) knowledge and intent to deceive the Government. Commercial Contractors, Inc. v. United States, 154 F.3d 1357, 1362 (Fed. Cir. 1998); see also Daff v. United States, 31 Fed. Cl. 682, 688 (1994) ("Fraud taints everything it touches." (citations omitted)). Here, with respect to the First Purchase Order, the Government notified Ulysses that if it intended to manufacture the item sought "but [is] not CAGE 072E5, [it] must have evidence of a current contractual relationship with CAGE 072E5 to manufacture and sell this item." Ulysses was warned further that "[a]ny indication that [it has] misrepresented the product offered shall result in the Government considering rescission of any resultant contract and all other sanctions, contract penalties, and remedies established under any other law or regulation." As explained above, Ulysses knew that it was not CAGE 072E5, knew that it had no contract with CAGE 072E5 to manufacture part 178AS112, and falsely claimed that it was authorized by the Government to supply that part. Although the same warnings were not given to Ulysses with respect to the Second Purchase Order, Ulysses was on notice that it was required

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to supply the precise part specified in that order. Thus, even if Ulysses did not obtain the Second Purchase Order fraudulently, Ulysses's claim to the contracting officer for payment under that purchase order was false. III. The CDA Fraud Provision The CDA includes a fraud provision that provides as follows: If a contractor is unable to support any part of his claim and it is determined that such inability is attributable to misrepresentation of fact or fraud on the part of the contractor, he shall be liable to the Government for an amount equal to such unsupported part of the claim in addition to all costs to the Government attributable to the cost of reviewing said part of his claim. 41 U.S.C. § 604. The CDA defines a "misrepresentation of fact" as "a false statement of substantive fact, or any conduct which leads to a belief of a substantive fact material to proper understanding of the matter in hand, made with intent to deceive or mislead." 41 U.S.C. § 601(7). As explained in detail above, Ulysses made several false statements of substantive fact with the intent to deceive or mislead the Government.

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CONCLUSION For the foregoing reasons, we respectfully request that the Court grant our motion for leave to amend our answer in this case to assert affirmative defenses and counterclaims based upon the FCA, the special plea in fraud, and the fraud provision of the CDA.

Respectfully submitted, PETER D. KEISLER Assistant Attorney General

JEANNE E. DAVIDSON Director

s/ Deborah A. Bynum DEBORAH A. BYNUM Assistant Director

s/ Matthew H. Solomson MATTHEW H. SOLOMSON Trial Attorney Commercial Litigation Civil Division U.S. Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tel: (202) 305-3274 Fax: (202) 514-8624 May 17, 2007 Attorneys for Defendant

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CERTIFICATE OF SERVICE I hereby certify that on this 17th day of May, 2007, a copy of the foregoing DEFENDANT'S MOTION FOR LEAVE TO AMEND ITS ANSWER TO ASSERT AFFIRMATIVE DEFENSES AND COUNTERCLAIMS was filed electronically. I understand that notice of this filing will be sent to all parties of record by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/ Matthew H. Solomson MATTHEW H. SOLOMSON